Private sector salaries in the six countries of the Gulf Cooperation Council increased at an average rate of 9.0% over the last year, according to figures released today by GulfTalent.com, the Middle East’s leading online recruitment firm.

In its third annual survey of salary trends in the region entitled “Gulf Compensation Trends 2007”, GulfTalent.com revealed the following increases in basic salary by country, over the one-year period to August 2007:

Oman registered the biggest jump, from 5.6% last year to 11.0% this year, driven in part by a 15% pay rise for public sector employees. The government’s decision earlier this year to allow expatriates to change employers has dramatically increased staff attrition rates, further adding to the pressure on firms to increase salaries.

The UAE and Qatar, which are experiencing double-digit inflation this year, remain near the top of the rankings. The pay of UAE professionals increased by 10.7% against 10.3% last year, while in Qatar wages rose by 10.6%, marginally lower than last year’s figure of 11.1%.

Bahrain pay rises accelerated to 8.1% from 6.4% last year. Kuwait was virtually unchanged at 7.9% against 8.0% last year, while Saudi Arabia saw an increase to 7.7% from 6.5% the previous year.

Across the GCC, sectors enjoying the highest pay rise were construction, banking and energy – consistent with the last two years’ results and reflecting the sectors’ continued strong growth. Healthcare and education registered the lowest increases.

Among job categories, engineers and finance staff received the biggest pay rises, followed by human resource professionals in third place. Historically under-represented in the region, the HR function has recently been catapulted to the front line as Gulf-based employers grapple with the challenge of attracting, developing and retaining staff.

Key Drivers

GulfTalent.com’s study highlighted continued economic growth and intense competition for talent as key drivers of pay rises, along with spiralling living costs in parts of the region, particularly Qatar and the UAE, as well as large pay rises awarded to government employees in some GCC countries.

It also showed that the continuing depreciation of dollar-pegged regional currencies was diminishing the value of Gulf compensation packages for European expatriates, putting further upward pressure on salaries. Kuwait’s decision earlier this year to drop the US dollar peg and the subsequent 3% appreciation of its currency are increasing the competitiveness of Kuwaiti salaries relative to its neighbours and may intensify the pressure on other GCC countries to follow suit, it said.

Other drivers of pay increase highlighted in GulfTalent.com’s report were continued economic growth and rising salaries in India, traditionally the main supplier of expatriate workforce to Gulf countries, as well as the easing of laws in some GCC states regarding expatriates changing employment. With government controls no longer protecting employers against staff attrition, many are forced to raise pay levels to retain their employees.

Economic Impact of Staff Shortages

Several executives interviewed by GulfTalent.com complained that, while market demand was extremely healthy, skills shortages were limiting their companies’ ability to grow, forcing them to turn down new business or, in some cases, causing them to miss targets on their existing projects. The study warned that, if continued, this could limit overall growth in the non-oil sector of the economy, hampering the region’s plans to diversify away from oil.

GulfTalent.com’s research also found that smaller, less well established companies faced the greatest pressure, often unable to compete with pay packages offered by larger firms. The long-term impact for the market could be to impede growth of start-up companies, lead to smaller companies merging with larger enterprises and discourage new entrepreneurial ventures.

The survey further revealed that, as the supply of skilled staff from traditional markets such as India and Egypt diminished, many employers were looking to new sources such as China, Eastern Europe and Latin America. At the same time, staff shortages were forcing companies to outsource more of their operations or to switch to other processes and technologies that are less manpower-intensive.

GulfTalent.com’s study was based on a survey of 18,000 professionals in the six GCC countries, as well as interviews with regional business leaders and human resource managers.